Get Familiar With Basic Refinancing Terminology
Since mortgage rates are still low but expected to increase soon, you will want to figure out whether you want to refinance your mortgage quickly. Its a good idea to familiarize yourself with some of the common terms used in the world of refinancing so you can navigate your options quickly and confidently.
Be Sure To Shop Around
If you decide that refinancing your mortgage is the right way to go, make a point to shop around for rate quotes from different lenders. Doing that legwork could help you squeeze out some additional savings in the course of trading in your mortgage for another one.
A good place to start your rate shopping spree is your current lender — but don’t assume your existing lender will give you the best deal. There may be a better offer out there, so it’s a good idea to gather a handful of quotes before moving forward.
Is It Too Late To Refinance With Mortgage Rates On The Rise Here Are Your Options
- Mortgage rates are on the rise in 2022.
- If you still want to pull some cash out of your home, here are your options.
For many homeowners, the pandemic offered an unprecedented opportunity to build wealth. Those opportunities still exist, even though they are getting harder to come by.
Thanks to skyrocketing housing prices, the amount of home equity is at an all-time high.
As of the third quarter of last year, homeowners held $9.4 trillion in equity to tap, the largest amount ever recorded, according to the most recent data fromBlack Knight, a mortgage technology and research firm.
For the average homeowner, that’s nearly $178,000 in available, tappable equity before hitting a maximum combined loan-to-value ratio of 80%, according to Black Knight Data & Analytics President Ben Graboske.
Taking advantage of all that extra cash, however, becomes more difficult as interest rates rise.
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Mortgage rates are already heading higher, thanks, in part, to inflation and the Federal Reserve.
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Are Mortgage Refinance Rates Still Low
When the COVID-19 pandemic first hit in March of 2020, the Federal Reserve devised a monetary policy to help stabilize financial markets and soften the economic impact of the virus.
That included reducing the federal funds rate the interest rate banks charge each other for short-term loans to near zero. The Fed also pledged to purchase $40 billion worth of mortgage-backed securities, and $80 billion in Treasury notes and other financial instruments per month. These moves pushed mortgage rates below 3% for the first time in history.
However, with employment improving but inflation rising, the central bank began pulling back on its tight monetary policy in late 2021. The Fed has been reducing its purchases of Treasury notes by $10 billion each month and of MBS by $5 billion per month. In June 2022, Fed policymakers announced they would increase the federal funds rate by 0.75 percentage points and expect more rate hikes this year.
Since the beginning of 2022 rates have jumped substantially and are currently averaging 4.99%. Still, if youre considering a refinance, it may be best to act sooner rather than later. Most economists agree that mortgage rates will increase further.
Helocs Could Be The Answer
And dont forget the home equity line of credit. A HELOC is a great financial tool that lets you tap into your equity yet keep your current first mortgage. With a HELOC, you only draw out the money you need. So youre not paying interest on the funds you havent taken.
So just because you hear on the news that rates are rising, dont discount what you can do with the equity you have in your home and why refinancing may still be the best option in some circumstances.
To learn more about PenFed loans or what loan is right for you:
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To Switch From An Arm To A Fixed
For some homeowners, this can be an excellent move, particularly if you intend to stay in the home for years to come. But homeowners who are simply afraid of the bad reputation of an adjustable-rate mortgage should carefully look at their terms before making a move to refinance.
If you have an ARM, make sure you know the index to which it is tied how often the loan adjusts and what the caps are on loan adjustments for the first cap, annual cap, and lifetime cap. It may be that a fixed-rate loan is better for you, but do the math before committing to spending money on a refinance.
You Want To Convert From An Adjustable Rate To Fixed
If mortgage rates are increasing and you currently have an ARM or adjustable rate-mortgage you may want to consider refinancing and converting to a fixed-rate mortgage. Thats because with an ARM, your rate may increase beyond what youd pay with a fixed-rate mortgage. If youre concerned over future interest rate hikes, a fixed-rate mortgage could provide some peace of mind.
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What Is Quantitative Tightening
While you can be forgiven for not closely monitoring the day-to-day gyrations of the Treasury market, youâve surely noticed surging mortgage rates and a topsy-turvy stock market. For that you can, in part, thank the Fedâs quantitative tightening policy.
The Fedâs mission is to keep prices stable and maximize employment. With inflation sitting near 40-year highs, the Fed is focused primarily on returning price growth to its 2% target. Thatâs why the Fed has raised the federal funds rate so aggressively: Thatâs the most direct way it can control interest rates.
Additionally, the Fed will lower its balance sheet in the hopes that doing so will raise yields on longer-term bonds. This is what is meant by quantitative tightening.
Is It Cheaper To Refinance With My Current Lender
Not necessarily. While it is possible having an established relationship with your current lender may lead to more favorable rates, its not a guarantee. Your best option for finding the best mortgage rate is to shop around and consider different types of lenders, including banks, mortgage brokers, private lenders and credit unions.
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With Mortgage Rates On The Rise Is It Too Late To Refinance Your Home
Amid signs the economy is beginning to bounce back, average mortgage rates have risen sharply in recent weeks and though ultra-low rates are still out there, they’ve become harder to find.
So what does that mean if you’re a homeowner and have been considering refinancing your mortgage? Has that boat sailed?
Its never too late to refinance, says Tendayi Kapfidze, chief economist for Lending Tree. Analysts say plenty of homeowners still stand to benefit from a refi, and that group may include you.
To Reduce Your Monthly Payments
In general, reducing your monthly payments by lowering your interest rate makes financial sense. But don’t ignore the costs associated with refinancing. In addition to the closing costs and fees, which can range from 2% to 3% of your home loan, you will be making more mortgage payments if you extend your loan terms.
If, for example, you have been making payments for seven years on a 30-year mortgage and refinance into a new 30-year loan, remember you will be making seven extra years of loan payments. The refinance may still be worthwhile, but you should roll those costs into your calculations before making a final decision.
Comparing the amortization schedule of your current mortgage to the amortization schedule of the new mortgage will reveal the effect a refinance will have on your net worth.
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Ready To Refinance Here’s What To Do
Once you decide to pursue a refinance, you’ll want to look at mortgage offers. To find the best rate, its important to shop around by checking mortgage rates from multiple lenders.
Studies from both Freddie Mac and LendingTree have found that if you compare at least five loan offers, you’ll save thousands more over time than a borrower who pounces on the very first offer without seeing others.
If youve been hunkering down during the pandemic, you probably havent been spending much on big purchases and fancy trips. In other words, you havent been stretching your credit which should help your credit scoreand help you lock in an attractive mortgage rate.
Another way to save on your housing costs is to make sure youre getting the lowest rate on homeowners insurance. Like you did for mortgage rates, comparison shop to get the best deal.
Your Home Value Has Increased
If the value of your home has gone up, you might also get some benefit from refinancing, especially if you have other high-interest debt to pay off or another financial goal.
A cash-out refinance lets you take out a new mortgage thats larger than what you previously owed on your original mortgage, and you receive the difference in cash. A cash-out refi is an alternative to a home equity loan.
You also might consider a cash-out refi for home improvements or to pay for a childs education.
But youll want to make sure you dont end up paying more in mortgage interest than the interest you would pay on any debt youre using the cash to pay off.
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Whats The Best Way To Refinance Your Mortgage
There are many ways to start a mortgage refinance, but one of the easiest is to go through an online marketplace, which allows you to get refinance offers from multiple lenders all at the same time while only having to submit your information and requirements once.
An online marketplace lets you compare options without having to reach out to individual banks, credit unions and other lenders one at a time. Getting started is a relatively quick process, which is handy because while conditions for refinancing are still favorable today, they can and likely will change in the future.
While its impossible to predict exactly how quickly interest rates will start to rise again, the one thing thats certain is that they wont remain this low forever. So if youve been worried that you missed your chance to refinance your home, the good news is its not too late. But youll want to start exploring if a mortgage refinance makes sense for you sooner rather than later.
Your Refinancing Fees Are Too Expensive
A mortgage refinance can be expensive. Here are some typical fees you may have to pay.
- A mortgage application fee
- Origination fee
- Appraisal fee
Make sure you know what costs to expect and whether you can afford them. If youre unable to pay the fees at this time, you may need to wait before refinancing.
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Lower Your Monthly Mortgage Payment
When you took out your existing mortgage to buy your home, you may have gotten a higher interest rate than you wanted. This could be because you had poor credit or a short credit history or just because rates were higher at the time.
If your credit and income have improved since then, you could potentially qualify for a lower rate than you have by refinancing your home loan. You can also change your loan term. With those two changes, you could significantly reduce your monthly payments.
According to Freddie Mac, those who refinanced their mortgages during the first half of 2021 saved an average of $2,800 annually in mortgage payments. Thats a lot of money youd save every month that you could put toward other goals, like your retirement fund.
Find Out What’s Happening In Across Americawith Free Real
Mortgage rates took a steep dip in 2020 and continue to remain at attractive levels for homeowners. This has led to an increase in home purchases and refinancing. If you’ve been sitting on the idea, but haven’t acted yet, it’s not too late to refinance your mortgage! Your mortgage is probably one of your biggest financial burdens, so if there’s an opportunity to reduce that monthly cost, now is a great time to consider refinancing.
If you’re wondering what the benefits of refinancing are, check out our article, 6 Reasons to Refinance. A recent Black Knight study found that 19.3 million homeowners could lower their current mortgage by 0.75% by refinancing. That’s extra money in your pocket each month!
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Mortgage Rates Are Rising Is It Too Late To Refinance
With mortgage rates going up, I can predict whats going to happen when I gather with friends and family in the coming months: Someone is going to ask if they still should refinance. Without their mortgage statement on hand, without my fancy financial calculator in my pocket, without food in my stomach, and if Im holding a drink in my hand, theres no way I can give an informed answer. However, there are times when even I need to use a rule of thumb, and here it is:
$100,000 balance owed, you need to save at least 2% on the interest rate
$200,000 balance owed, you need to save at least 1% on the interest rate
$300,000 balance owed, you need to save at least 3/4% on the interest rate
$400,000 balance owed, you need to save at least 1/2% on the interest rate
Refinancing for the Right Reason
If youre considering a refinance and want to know if its a smart idea in your situation, heres how I might answer, and its based on the reason for refinancing.
Doing the Calculation
Why Would Refinancing Be A Bad Idea
Refinancing is a bad idea if it doesnt represent some sort of gain, be it in the form of lower monthly payments or saving on interest by reducing the term of your loan. If the interest rate being offered isnt at least 0.5% lower than your current rate, its probably not worth the cost of a refi. Another reason not to refinance is if you plan on selling the house before you reach your breakeven point or if the new monthly payment is more than you can comfortably afford.
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What Does It Mean To Refinance Your Mortgage
Refinancing means applying for a new loan and using that loan to pay off your current loan. Youll need to qualify for the new loan and even pay closing costs for it. The benefit of refinancing is that you can take advantage of lower interest rates. You can get a lower interest rate if your financial situation has improved since the start of your original loan or if the markets interest rates are trending downward.
The Demand For Refinancing Has Dropped
In the heat of record-low interest rates in 2020, there were so many people who wanted to refinance that it was sometimes difficult to close on a new mortgage, resulting in reports of delays.
But now, even though new home inventory remains tight in many parts of the country, the pool of people who want to refinance has shrunk. According to the Mortgage Bankers Associations most-recent weekly survey, refinance applications decreased 2.7 percent on a seasonally-adjusted basis from two weeks earlier and are down 40% from the same time last year.
That means if youre looking to refinance, youll have a better chance of getting a deal done in a timely manner, since the system isnt as clogged as it was before, and you can still take advantage of todays low interest rates.
But you shouldnt wait too much longer. Lawrence Yun, chief economist at the National Association of Realtors, recently told CNN Business that he expects the 30-year fixed mortgage rate to increase to 3.7% by the end of 2022. That makes it important to lock in todays lower rates while you still can.
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Conventional Loan Refinance Rules
If you have a conventional mortgage one backed by Fannie Mae or Freddie Mac you might be able to refinance immediately after closing your home purchase or a previous refi.
Keep in mind many lenders have a six-month seasoning period before a current borrower can refinance with the same company. So youll likely have to wait if you want to refinance with the lender youre already using.
You can often get around the six-month seasoning rule by simply refinancing with a different lender.
But you can often get around that six-month refi waiting period by simply shopping around and refinancing with a different lender.
While its rare, some lenders charge a prepayment penalty fee that could derail your refinance plans. Check to see if your current loan has a prepayment penalty clause before moving forward.
Its recommended that you shop around before refinancing, in any case, to make sure youre getting the lowest rate possible.